Made in Italy in Chinese Market Emerging Issues for Italian Food

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Annali di Ca’ Foscari. Serie orientale Vol. 55 – Giugno 2019

Citation Antonio De Pin, Antonio(2019). “Made in Italy in Chinese Market. Emerging Issues for Italian food”. Annali di Ca’ Foscari. Serie orientale, 55, 509-538.

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Submitted 2019-02-15 Accepted 2019-06-20 Published 2019-06-27

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Edizioni

Ca’Foscari

Made in Italy in Chinese Market

Emerging Issues for Italian Food

Antonio De Pin

Università Ca’ Foscari Venezia, Italia

Abstract Considering the rapid changes in Chinese food habits, in both quantity and quality, the study aims to outline the market potentiality of the made-in-Italy food and focus on some emerging issues concerning Italian specialities that are characterised by higher competitiveness. Starting from the definition of made-in-Italy food, the pa-per addresses the topic of food safety, analysing policies and legislation. Following an approach from macro to micro aspects, market trends are highlighted, and a ranking analysis is carried out, emphasising the positioning of the made in Italy. Concerns related to transaction costs, information asymmetry, and adverse selection are discussed and the Italian sounding phenomenon is addressed. Growing practices of unfair competition, such as food piracy, result in several forms of market failure, damaging the segmentation strategies of Italian companies. Findings propose an estimate of unfair business and offer special indexes of evaluation. Finally, policy and business implications are addressed, and attractive and multiple fields for future researches are suggested.

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1 Introduction

Chinese food habits have experienced rapid changes in both quanti-ty and qualiquanti-ty of the diet due to the increased buying power of con-sumers and their new lifestyle (Zhou et al. 2014). The Chinese food sector has become the largest worldwide, with an average annual growth rate near 30% (World Bank 2013). This trend has remark-ably evolved. In this context, the import of agro food products ex-plodes and involves an increasingly diversified range of supply. This development affects consumption growth rates, which become very high for meat, dairy products, fish, oil, pasta, confectionery and con-venience food.

The rise in household income and the scandals over food safety are key drivers.

New distribution channels are deeply changing the purchasing system with hypermarkets, supermarkets, convenience stores. Cor-ner shops are spreading in urban areas, granting competitive pric-es and improved sanitary conditions (Jiang, Prater 2002). Firms are stimulated to introduce new products, to invest in innovation, but this does not always grant higher safety. In fact, the frequently oc-curring food safety scandals undermine consumer confidence and encourage new import flows (Yan 2012). The growth in food demand gives a major boost to imports, an essential opportunity for Italian businesses.

In this light, the present study aims to outline the potentialities of the Chinese food markets, which enjoy higher appeal for made in Italy, but are also suffering from growing concerns about food secu-rity, intended as a guarantee of food in both quantity and safety. We also focus on some issues concerning the positioning of foodstuffs in Chinese markets, such as the Italian food specialities, which en-joy higher competitiveness as they represent the excellence of Italy. Their success is likely to result in phenomena of Italian sounding, the unfair competition set out to achieve higher profits by evoking an Italian image, in the absence of its requirements (De Pin 2009). The counterfeiting and falsification growth is comparable to that of the market. Considering that original products require higher pro-duction costs, affecting its market positioning, company strategies are heavily influenced by imitation activity.

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system of competitive and commercial rules guaranteeing fair com-petition, the real transparency and settlement of the market fail. The result is the inducement of moral hazard behaviours – due to high transaction costs and manifest information asymmetries – translat-ing into specific kinds of market failure.

2 Background and Materials

2.1 Made-in-Italy food

A highly differentiated product portfolio, with a wide range of typi-cal products characterises the made-in-Italy food heritage. The pres-ence of a multitude of products and countless regional culinary prep-arations is the most distinctive feature of Italian cuisine (Censis, Federalimentare 2006). High competitiveness both in terms of qual-ity and food safety is the hallmark of Italian production, its culture and its culinary tradition.

Made-in-Italy food is defined as “the set of products recognized for their strong typical character, given their close link with the ter-ritory, on which Italy enjoys comparative advantages related to the environment and production systems” (ISMEA 2012, 141).

Homegrown food specialities consist of branded and typical prod-ucts, whose strict link to their area of origin is what makes the dif-ference in international markets.

European certificates like Protected Designation of Origin (PDO), Protected Geographical Origin (PGO) (Reg. 510/2006, ex 2081/92) and Traditional Speciality Guaranteed (TSG) (Reg. 509/2006, ex 2082/92) protect typical products. Typical Geographical Indication (IGT), Controlled Denomination of Origin (DOC), Controlled, and Guaranteed Denomination of Origin (DOCG) (Reg. 3016/2004) la-bel wines. Here the level of detail is much higher in terms of regu-lation, compared to China.

Italy can boast 294 PDO, PGI, TSG certificates and 532 DOC, DOCG, IGT labels (Ministry of Agriculture and Forests, year 2018). Italy is the main beneficiary of these regulations as the 22% of total PDO and PGI certificates issued in the European Union protects Ital-ian foodstuffs, and in particular fruit and vegetables (40%), cheese (18%), extra virgin olive oil (17.6%) and cured meat products (14%). More than 84,000 firms provide certified products, the 90% of which operate in the agricultural sector.

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vege-tables (27%), meat (16%) and cheese (10%) (Gazzetta Ufficiale nr. 57, 09.03.2018).

Made-in-Italy food includes branded, traditional and certified-origin products, i.e. categories that are of greater importance be-cause the international markets particularly appreciate their high-ly typical character.

The commercial role of made in Italy is realised through the anal-ysis of the country’s foreign trade, taking into consideration export-oriented products – which show a positive value on their normalised trade balance and constitute an important share of total exports. The cluster is identified considering only exports higher than 300 million Euro and a normalised trade balance higher than 20. To this range, we add cheese and olive oil, although in a trade deficit.

As for commercial terminology, the concept of ‘country-of-origin’ is ambiguous, as it includes the ‘origin country’ to which the product is associated; or ‘design-in country’, where it is planned or designed; ‘made in country’, where it is produced, or assembled.

Made in Italy is certified in case of DOP and IGP products, specif-ically defined as directly related to the territorial and geographi-cal origin. However, Italy excels in relevant specialities whose raw-material origin can only be foreign (pasta, coffee, chocolate). INEA proposed an alternative definition that distinguishes three catego-ries, depending on the level of transformation: “agricultural made in Italy”, as rice, fruit, vegetable; “transformed”, as wine, fruit juice, oil; “industrial”, as pasta, coffee, chocolate (Castellotti 2010). In this case, emphasis is placed on the recognition of the more elevated Ital-ian agro-food quality in the world. The process of globalisation and the shortage of national raw materials conform to the European Un-ion notUn-ion of ‘made in’, which is based on the “last substantial trans-formation of products” (Reg. (CEE) nr. 2454/93; art. 24).

Made-in-Italy products represent the 73% of exports (2017), al-though in an overall trade deficit condition, they are extremely

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Table 1 China’s Agro-food Imports (million USD)

The bigger share is the prerogative of those of first-stage process-ing (wine, olive oil, cheese) that concentrate the 42% of sales (16.1 billions of euro). The incidence of made in Italy of second-stage pro-cessing (pasta, baked goods, coffee, chocolate) exceeds one fifth of exports, while agricultural made in Italy is worth over 4.3 billion of euros (11% of exports). Primacy goes to wine, with a weight of 13.8% and an increase of 5.6% compared to 2015. The share of fresh fruits is very close at 7% (2.65 billions of euros). Other important sectors are those of pasta (6%), baked goods (4.7%), cheese (4.3%), processed tomatoes (4.1%), cocoa products (4.0%), cold cuts (3.8%). Among the first sectors there is also coffee, which abroad sales in 2017 exceed-ed 1.3 billion of euros (+10% comparexceed-ed to 2015).

Made-in-Italy foods are high-end products, representation of su-perior quality, both in composition (organoleptic characteristics, raw materials, processing system) and image (emotional aspects, brand, collective trademark, geographical origin). The capacity to meet all the requirements of consumer demand for quality reduces the rele-vance of price in driving purchase behaviour. The quality of made in Italy high-end food products is worldwide recognised.

Table 1 - China’s agro-food imports (million USD)

Ranking 2017 2005 2010 2015 2017 100 Δ % 17/10 1 Brazil 3.472 9.810 26.180 35.548 22 654 262 2 Unites States 6.193 12.344 24.428 25.027 15 294 103 3 Canada 937 2.724 4.492 8.956 6 379 229 4 Argentina 2.965 5.126 5.810 6.318 4 96 23 5 Thailandia 1.697 4.778 4.454 6.067 4 162 27 6 Australia 2.368 3.851 6.406 5.152 3 170 34 7 Indonesia 1.202 4.146 4.466 4.843 3 272 17 8 New Zealand 599 1.972 3.684 3.895 2 515 97 25 Italy 68 209 439 446 0,3 546 114 Total Import 21.358 52.171 113.041 162.832 100 429 212 Total Export 13.858 44.116 63.186 73.649 356 67 Balance - 7.500 - 8.055 - 49.855 - 89.183 565 1.007 Normal. Bal. -21% -8% -28% -38% 33 351 Import Agricult. prod. 9.757 20.869 70.381 111.570 69 621 435 Food products 11.601 31.302 42.660 51.262 31 268 64 Ey ap 2,2 2,4 6,8 8,3 Ey fp 2,7 3,3 1,4 0,91

*Ey ap/fp: income elasticity for imports of agricultural and food product Source: World Trade Atlas, ICE, China’s Customs Statistics

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Consumers are becoming increasingly attracted to the intangible aspects linked to a product, the most important being its geographi-cal origin with its background of culture and tradition that is accepted as proof of its quality. Hence, the production certified by designation and indication of origin achieves a great success in terms of export.

The denomination ‘country-of-origin’ steers consumer’s choice by conveying an idea of quality linked to the place of origin, proveni-ence of raw components and intellectual property. Furthermore, the label ‘made in country’ enhances the transparency of transactions promoting a healthy global competitiveness.

The firms can approach the international market relying on the fame of Italy (Checchinato et al. 2013). Foods incorporate its values of personalization, peculiarity, uniqueness, regional culture and identity. On the contrary, generalization, depersonalisation of regional as-pects, homologation of food styles tends to generalise, unify and de-territorialize the action of food consumption. In such a contest, the localisation cannot be underrated.

The strategy of integration of local supply and globalisation is rep-resented by the ‘glocalisation’, where territory, peculiarity and local traditions find their right place and are kept into consideration by a specialised demand and niches of market worldwide provided by global companies (Foglio 2004). This concept re-establishes a cor-rect connection between the value of local and socio-cultural ele-ments and the significance of the food consumption experience in the global market.

The European Union meets this issue by conforming the transac-tions to the principle of ‘country-of-origin’. The law of the country in which goods are produced regulates the commercial exchanges. The aim of this approach is to have the final consumer informed on the geographic origin of goods, thus marketing strategies must be directed towards raising awareness.

The relevance of geographical origin on consumers’ behaviour is widely accepted in marketing; as the choice process is induced, the place of origin of a product deeply influences the evaluation of its characteristics (Erickson, Johansson, Chao 1984). The collective evaluation of a Country substitutes any other information and sug-gest intrinsic characteristics of foods, becoming a major decisional factor in consumer choices.

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This kind of perception influenced by cognitive and emotional compo-nents leads to the formation of internationally rooted stereotypes, facili-tating and simplifying the process of consumer choice (Nagashima 1970). An innovative study path that today links various fields of investi-gation refers to the research of indicators able to efficiently synthe-sise sets of information aimed at the determination of rankings and, more in general, at the definition of competitive positioning. Not only the ranking of made in Italy at the international level is significant, also the opportunity to enhance information obtained from rating’s variables in perspective of guidance of competitive development of firms. In other terms, benchmarking methods result functional to in-crease the competitive advantage of firms of made in Italy on inter-national markets, through the strategic implementation of the fac-tors that determine it.

In this context, the index Quality Domestic Product (QDP) meas-ures the level of quality achieved by Italian production by making a ratio between ‘Gross Domestic Product’ (GDP) and quality production in terms of competitiveness and market, positioning, technological and social innovation, improvement of human and cultural

resourc-es, territory and environment (Symbola 2007).1_{This new indicator}

provides further methods to measure the intangible values, which the traditional GDP does not reflect (Frenda, Piana, Scippacercola 2014). In this light, made-in-Italy food takes high reputation (Camp-iglio, Barnabò, Sturabotti 2012).

Italy boasts the global quality leadership on 120 foodstuffs among the 704 in which the international trade is disaggregated (cheese, strawberries, vinegar, cold cuts, mushrooms, ham, cherries, pasta, to-matoes, oil) (Symbola 2017). The Quality Domestic Product index can be applied to single sectors, to measure the share of product attributable to improved quality parameters and criteria (Zucaro, Sturabotti 2014).

Other indicators can be used to understand the performance of made-in-Italy food exports, namely “distance index” and “sophistica-tion index” (Carbone, Henke, Subioli 2009).

If the distance among markets is a limiting factor, it highlights how emerging dynamics of Chinese imports imply the sensible increase of distance index for made-in-Italy food, confirming their higher com-petitiveness (De Filippis 2012).

The complexity of agro-food trade can be studied through the “measure of sophistication” with the use of “Prody and Expy index”

(Lall, Weiss, Zhang 2006).2

1 The computation of QDP identifies and summarises basic indicators that represent the different qualitative aspects.

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Made-in-Italy foods are placed on an interesting position on Chi-nese market, especially if compared with closer competitors (France, Spain, Greece) (Carbone, Henke 2012).

2.2 Food Safety Policy

Food safety represents the degree of development achieved by a Country. The Chinese Government is carrying out important efforts to conform to international standards. For this reason, at the end of 2007, has approved the document “The Quality and Safety of Food in China”. This is a major benchmark of the economic development and people’s living conditions (Lam et al 2013). By adhering to the peo-ple-oriented approach, the Chinese government has given great im-portance to food quality and safety: building a supervisory system, strengthening the setting of standards, exercising strict quality con-trol and actively promoting international cooperation (Naronte 2008). On April 24, 2015, the Standing Committee of China’s National People’s Congress, under the last five-year Plan, revised the Food Safety Law, come into effect in October. The revisions are wide-rang-ing, imposing stricter controls and supervision on food production and management.

Once divided among different agencies, the system is now central-ised, with China Food and Drug Administration (CFDA), under the State Council, responsible for the supervision of food production, dis-tribution and restaurant catering.

Food producers must maintain a record system for the supply and

examination of food ingredients, additives, and related products.3

Food traders, importing agents, producers must be recorded with the General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ).

Ordering meal online is now a global trend, so safety of food bought on the internet has raised issues. Food trading platforms must get a trader’s permit.

Ingredients outside the approved list must be registered with CF-DA, always required for imported health foods.

A key revision is stricter regulation for baby formula food. More-over, the rules on genetically modified foods provide specific pack-ages and labels.

competition and profitability levels depends on them. The hypothesis is that such char-acteristics are correlated to the income level of exporting countries.

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Compared to previous, the updated law imposes harsher sanc-tions on violasanc-tions. The fine is up to twenty times the products’ val-ue. While it is ten times the consumer indemnity.

The last law is claimed to be the strictest food safety law in Chi-nese history.

This shows the will of the Chinese government in cracking down

on recent food scandals.4_{CFDA and local FDAs are granting more}

en-forcement power in addressing food safety issues, controlling every step of food (production, distribution, sale and recall). Special provi-sions are set out for products, which have been a focal point in food-safety incidents in recent years and for innovative trading activities, including internet portals and e-commerce channels.

However, its recent evolution highlights the difficulty of reconcil-ing conflictreconcil-ing needs, like food safety and food security. Therefore, China has postponed for two years the regulation for import food, after a push-back from the United States and European Union. The last law cuts China off from the global food market and its measures

are out of step with global practices.5_{The effort of implementing the}

new legislation can limit the chance to access to international trade. On the other hand, also the foreign companies, aware of most re-cent updates on laws in this domain, complain about unfair treat-ment. The market-entry costs are amplified in fees and resources are required. Product registration, labelling and product expiry dates are particularly hard concerns. Adjusting and accommodating to new regulation are expensive and time-consuming, further increas-ing transaction costs.

Even though the entry into the World Trade Organization, in 2001, has seen the reduction of charges on a wide range of imported prod-ucts, barriers tariff and non, health regulations, prohibitions, bur-densome customs procedures, a disjointed and stratified system of

licensing represent additional obstacles (Francescone 2012).6

4 As it is known, there are uncountable scandals related to food safety in China, about 50,000 each year (Li et al 2015). The punishments are proverbial too, including the death sentence (Lafraniere, Sharon. “Two Executed in China for Selling Tainted Milk”. The

New York Times, 24 November 2009).

5 China has notified the World Trade Organization – September 25th, 2017 – a tran-sition period for the rule (China’s WTO notification TBT 1209, Addendum to the “Meas-ures for the Administration of Certificates Attached to Foods Exported to China”).

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2.3 Dynamics and Aspects of Chinese Market

Understanding the evolutionary dynamics of the Chinese market re-quires a mix of several kind of information (market, laws, and even culture) and is quite hard.

A key growth driver in the Chinese economy is the rapid rise in average household income, experiencing a Gross Domestic Product growth, until recent years, of approximately 10%.

Urban population is expected to grow to one billion people soon (2025), while 200 towns exceed one million people (World Bank 2013). These evolutionary rates of socio-demographic variables reflect the rising proportion of income spent on food. This plays such an impor-tant role characterising the food-centred Chinese culture. Nutrition-al consumption patterns change significantly with improved living standards (Del Giudice et al. 2012).

With a population of almost 1.5 billion, increasing by 20 million each year, China is the largest consumer market for imported food (Huang et al. 2017).

Imports of agro-food products have reached 163 billion USD in

2017 (+43% on 2015), remarking an exponential dynamic [table 2].

Table 2 Italian Agro-food Balance

The greater demand for agricultural commodities (+58.5% on 2015), compared to foodstuffs (+21.4%), results in an increasingly nega-tive trade balance (-89 billion USD in 2017), rising the normalised

one to -38.7

Significant changes in eating behaviour are connected to income level. Demand for original calories spikes; animal calories replace

7 The normalised trade balance is compounded as (Exp-Imp)⁄(Exp+Imp)*100.

Table 2 - Italian agro-food balance

Macroeconomic aggregates 2000 2012 2013 2014 2015 2017 ∆ 17/15

Import - I 25.358 38.690 39.756 41.043 41.991 44.335 66% 6% Export - E 16.867 32.132 33.645 34.629 37.209 40.854 121% 10% Made in Italy - MiI 9.268 19.279 21.870 24.240 27.452 29.905 196% 9% Made in Italy/Export - MiI/E 55% 60% 65% 70% 74% 73% 34% -1% Trade balance - E-I -8.491 -6.558 -6.111 -6.414 -4.782 -3.481 -44% -27%

Normalized trade balance - (E-I)/(E+I) -20,1% -9,3% -8,3% -8,5% -6,0% -4,1% -70% -32%

Trade volume - (I+E) 42.225 70.822 73.401 75.672 79.200 85.189 88% 8% 67.899 79.285 81.683 81.420 81.420 85.977 20% 6% Appartent consumption - (P+I-E) 76.390 85.843 87.794 87.834 86.202 89.458 13% 4% Self-sufficiency ratio - (P/C) 89% 92% 93% 93% 94% 96% Tendency to import index - (I/C) 33% 45% 45% 47% 49% 50% Tendency to export index - (E/P) 25% 41% 41% 43% 46% 48% Commercial coverage ratio - (E/I) 67% 83% 85% 84% 89% 92%

1 Agricoltural production, forestry, fishing, food industry Source: elaboration on Istat and CREA data

∆ 15/00

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the vegetable ones; and processed food substitutes agricultural prod-ucts (Malassis, Ghersi 1995).

The evolution towards an advanced society requires, as well, an always-higher import of commodities for animal farming, their nat-ural outlet.

The convergence process of eating patterns mimics those of the satiety society, orienting the agricultural production. Consequently, relevant impacts on import affect the international market.

This process can be synthesised by the divergent evolution of

elas-ticity for commodities import compared to foodstuffs.8

The import elasticity of agricultural commodities shows values bigger than one and increasing (6.8 in 2015; 8.3 in 2017), stigmatiz-ing the current substitution process.

On the contrary, the elasticity of processed food is receding to val-ue lower than one (from 1.1 of 2015, to 0.90 of 2017), according to eco-nomic theory that lists foodstuffs among necessary goods.

In terms of market development, lower custom duties, consumer commerce liberalization, foreign direct investments, modernization of retail distribution are the driving forces (Jiang, Prater 2002). On the contrary, food safety scandals, remaining prevalent, damage con-fidence and trust in Chinese food. For this reason, consumers who can afford higher prices are driven to buy foreign stuffs, because of increasing concerns about food safety and health.

Confidence in food safety, ingredient integrity, high-quality prod-ucts are the key to purchase imported supply (Babcock 2018). New lifestyles require more variety, modern packaging, freshness, con-venience and superior nutritional values.

While, in terms of delivery organisation, the import of food for con-sumer retail is a mostly recent phenomenon, not yet sustained by a well-established chain of importers and distributors (Hingley, Lind-green, Chen 2009), nevertheless, the dimension of the market speed-ily attracts new competitors.

From a territorial point of view, strong disparities can be observed between urban agglomerations and rural areas, as well as among dis-similar regions (Zhang, Figliozzi 2010).

Specific marketing studies have led to the division of China

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to several macro areas, defined, by different levels of consumer awareness development: the growing markets (South and East Chi-na), emerging markets (North, Central and South West), unexplored markets (North West and East China) (Busato 2011).

The peculiarity of each local market requires specific strategies, proper entry investments, strong operative undertakings, settlement of company’s staff in site and a long time before generating income (Vescovi 2011a).

In this developing system, in which the elements of uncertainty are still high, personal relationships with importers, distributors, agents, officials and clients are crucial to create brand loyalty (Puppin 2014). Enforceability of contracts is generally weak. Business relies heav-ily on personal contacts and influence.

In such a context, success is closely connected to the network of relationships established. Managing relationships in the Chinese eco-nomic culture acquires great strategic relevance, necessary before

starting any sort of business.9

Failure to identify fundamental success elements and managing

business too offhandedly may lead to great disappointment.10

Important factors – such as high fixed entry-costs, logistics, devel-opment of the local staff – are decisive keys for business success. To all this, we must add the challenge to understand the average Chi-nese consumer, who is sensitive to price and hesitant to approach products that are too far from its tastes (Yu et al. 2007). Business success requires a mix of several kind of knowledge and information (market, laws, and even culture) and is quite demanding.

All these factors raise transactional costs, suggesting that only careful competition strategies, based on an accurate segmentation of the market, both geographically and by consumer groups, are able to offset the high commercial risks, arising from the effort of under-standing of a quite different culture.

9 This is the so-called guanxi, the circle of relationships and contacts that identifies the never-ending network of interpersonal bonds, which is necessary to reach one’s own aims of business development.

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3 Data Analysis and Results

3.1 Markets Trends and Ranking of ‘Made-in-Italy food’

Italy occupies the 25th place among countries exporting in China, with a 446 million USD supply in 2017, but features a substantial an-nual growth rate (about 25%).

The agro-food commercial balance highlights a negative value, albeit in contraction, for Italy, that is net importer for 130.5 million USD [table 3].

Table 3 Agro-food Import-Export Italia-China (million USD)

Table 3 -Agro-food Import-Export Italia-China (millionUSD)

Year Exports to China Import from China Total Norm.

Agr. Pr. Food Agr. Pr. Food Export Import Balance Balance 2015 39,14 9% 285,21 65% 114,70 26% 297,07 46% 337,71 53% 4,5 1% 439,05 639,28 -200,23 -18,6

2016 45,56 12% 225,66 57% 121,64 31% 276,47 43% 356,11 56% 4,81 1% 392,86 637,39 -244,53 -23,7

2017 41,00 9% 250,66 56% 154,79 35% 253,81 44% 318,2 55% 4,94 1% 446,45 576,95 -130,50 -12,8

Var. % 4,8 -12,1 35,0 -14,6 -5,8 9,8 1,7 -9,8 -34,8 -31,3

Source: World Trade Atlas, ICE, China’s Customs Statistics

Beverage Beverag

e

Beside foodstuffs (55% of imports), there are still different agricultur-al commodities of Chinese origin (44%), however such commodities are in downward trending (-14.6% between 2015 and 2017).

In contrast, mainly foodstuffs (56%) and beverages (35%) charac-terise exports. As such, the normalised balance is improving, still negative nowadays (-12.8). In China, the decreasing propensity to export, due to the inducement of development of the internal mar-ket, goes along with higher demand of made-in-Italy foodstuffs and beverages.

In this context, despite the relatively limited current dimensions, made-in-Italy food presents one of the most dynamic trends. Many elements highlight the great potential for imports.

China’s great interest in made-in-Italy products is largely proved by the analysis of the ranking market of specific segments, whose in-creasing trend figures positive performances.

Currently, the main exported product from Italy is wine, followed by chocolate, pasta and bakery products; olive oil sees Italy as the second largest exporter after Spain. Many other specialities such as meat, sausages, hams and dairy products are still low on quantity, but chances of seeing a growing market are excellent.

For wine, the most famous Italian product, Chinese imports reach 143 million euro in 2017, with a 20% increase over the previous year. However, Italy’s current position – fifth place, with just a 6% of mar-ket share after France, Australia, Chile and Spain – is not yet ade-quate to the role played in the global market, especially if compared

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Annali di Ca’ Foscari. Serie orientale e-ISSN 2385-3042

55, 2019, 509-538 ISSN 1125-3789

522 Table 4 Wine Import in China

Table 4 - Wine import in Cina

Ranking 2017 Hl/1000 Million Euro Price per litre

2016 2017 Δ% 2016 2017 Δ% 2016 2017 Δ% 1 France 1.965 2.366 20,4 31,5 904 973 7,6 39,5 4,60 4,11 -10,6 125 2 Australia 1.050 1.444 37,5 19,2 518 640 23,6 26,0 4,93 4,43 -10,2 135 3 Chile 1.462 1.308 -10,5 17,4 243 290 19,3 11,8 1,66 2,22 33,4 68 4 Spain 938 1.344 43,3 17,9 144 171 18,8 6,9 1,54 1,27 -17,1 39 5 Italy 324 375 15,7 5,0 120 143 19,2 5,8 3,70 3,81 3,0 116 6Unites States 133 127 -4,5 1,7 54 72 33,3 2,9 4,06 5,67 39,6 173 Total 6.389 7.511 17,6 100 2.143 2.466 15,1 100 3,35 3,28 -2,1 100 Source: Elaboration Comtrade, ISMEA data

Thanks to an uninterrupted growth, China is part of the four major consumers, the first, if we consider the widely most appreciated red wines. Bottled red wines represent the highest import share (91%), whereas sparkling wines are marginal (2.7%) highlighting the high

penetration potential of our local ones, like prosecco.11

Conversely, the consumption of Italian olive oil in China witness-es a remarkable increase, reaching a 50% annual rate. The change in food habits leads to the appreciation of its nutritional properties. Price still exerts a major hindering influence on purchase, as Chinese consumers are not yet able to evaluate other qualitative characteris-tics. Extra virgin olive oil retains the best appeal, as its geographical origin conveys to the consumer an image of quality. China’s imports of extra virgin oil have rapidly grown, reaching 307.7 million USD in 2017: Italian exports touched 42 million, a 14% share, in second place after the most competitive Spain (246.2 million; 80% share). Olive oil is identified by its origin country and its renowned brands,

among which major Spanish producers stand out [table 5].

Table 5 China’s Imports of Extra Virgin Olive Oil - Bakery Products (million USD) Table 5 – China’s imports of extra virgin olive oil - Bakery Products (million USD)

Ranking 2017 2005 2010 2015 2017 Δ % 15/05 Ranking 2017 2005 2010 2015 2017

Olive oil Pasta

1 Spain 8,2 34,1 140,7 246,2 80 1.616 621 1 Korea S. 10,7 7,3 41,1 116,0 50 284 1496 2 Italy 6,6 15,2 19,3 41,9 14 192 176 2 Italy 1,7 5,0 20,5 25,9 11 1.128 420 3 Greece 1,9 4,5 5,3 9,2 3 184 105 3 Hong K. 1,5 3,9 20,4 22,7 10 1.269 482 4 Australia 0,6 1,8 3,0 3,1 1 376 75 4 Taiwan 1,7 5,6 24,8 21,2 9 1.356 279 5 Turkey 0,1 1,5 0,9 1,5 0,5 528 3 5 Japan 2,5 4,6 10,8 5 - 325 6 Thailand 0,9 2,1 6,7 6,2 3 619 201 Total 17,7 74,5 175,9 307,7 100 891 136 Total 19,0 53,5 149,0 245,0 100 684 358

Source: World Trade Atlas, ICE, China’s Customs Statistics Source: World Trade Atlas, ICE, China’s Customs Statistics

Table 6 – China’s Imports of Pasta - Coffee (million USD)

Ranking 2017 2005 2010 2015 2017 Δ % 15/05 _{Ranking 2017} ₂₀₀₅ ₂₀₁₀ ₂₀₁₅ ₂₀₁₇ Bakery Coffee 1 Indonesia 1,6 26,7 135,7 214,0 70 8.225 701 1 Indonesia 3,4 4,4 27,6 43,5 19 702 895 2 Hong K. 15,5 42,2 107,0 137,0 45 593 225 2 Malaysia 28,6 34,5 15 - -3 Taiwan 0,4 13,5 64,2 48,5 16 14.830 259 3 Vietnam 7,5 37,3 59,5 23,8 10 690 -36 4 Denmark 9,3 20,8 80,6 46,4 15 769 123 4 Italy 1,9 5,3 18,1 22,4 10 878 324

5 Korea S. 2,1 7,2 39,9 37,0 12 1.764 414 5 Unites States 3,5 9,6 11,1 17,9 8 222 86

6 Italy 1,2 4,9 26,5 26,7 9 2.072 445

Total 50,5 167,8 713,8 794,0 100 1.313 373 Total 31,2 78,5 209,0 231,0 100 570 194

Table 7 – China’s Imports of Cheese - Chocolate (million USD)

Ranking 2017 2005 2010 2015 2017 Δ % 15/05

Ranking 2017 2005 2010 2015 2017

Cheese Chocolate

1 New Zeal. 14,5 52,2 131,9 246,2 48 810 372 1 Italy 5,1 47,9 107,0 69,2 21 2002,2 44

2 Australia 11,4 21,6 87,4 85,5 17 666 296 2 Russia 62,5 19 3 Unites St. 3,8 13,6 51,6 61,7 12 1.258 354 3 Belgium 3,4 15,5 36,9 49,8 15 978,9 221 4 Italy 1,0 3,1 20,9 32,3 6 1.949 942 4 Unites St. 8,5 11,1 26,5 26,4 8 210,3 138 5 Denmark 0,8 2,9 14,3 25,7 5 1.679 786 5 Germany 2,0 13,0 47,4 24,0 7 2306,1 85 Δ % 17/10 Δ % 15/05 Δ % 17/10 Δ % 17/10 Δ % 15/05 Δ % 17/10 Δ % 17/10 Δ % 15/05 Δ % 17/10

Regarding pasta, it enjoys a long tradition in Chinese cuisine (noo-dles), thus paving the way for the success of Italian pasta. In 2017

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China imported 245 million USD of pasta, of which 25.9 from Italy, in second place after South Korea (116 million), outdoing the previ-ous year statistics by 26%.

On the contrary, bakery products have been almost absent from the traditional Chinese diet, where baking is a scarcely diffused cook-ing method, but lately have gained large diffusion causcook-ing an increase in imports and the establishment of a thriving local industry. More than 4,000 large companies are active, with production exceeding two million tons per year, although the average per-capita consump-tion barely reaches 1.5 kg. Despite the great market potentiality, many local companies are forced to cease their activity because of the fierce competition, and Honk Kong, Macao and Taiwan are flood-ing the market with important investments. The penetration of mul-tinational companies fosters the development of this sector, causing deep changes in the traditional productive system. The highest

prof-its are gained by numerous foreign capital joint ventures [table 6].

Table 6 China’s Imports of Pasta - Coffee (million USD)

Table 5 – China’s imports of extra virgin olive oil - Bakery Products (million USD)

Ranking 2017 2005 2010 2015 2017 Δ % 15/05 _{Ranking 2017} ₂₀₀₅ ₂₀₁₀ ₂₀₁₅ ₂₀₁₇

1 Spain 8,2 34,1 140,7 246,2 80 1.616 621 1 Korea S. 10,7 7,3 41,1 116,0 50 284 1496 2 Italy 6,6 15,2 19,3 41,9 14 192 176 2 Italy 1,7 5,0 20,5 25,9 11 1.128 420 3 Greece 1,9 4,5 5,3 9,2 3 184 105 3 Hong K. 1,5 3,9 20,4 22,7 10 1.269 482 4 Australia 0,6 1,8 3,0 3,1 1 376 75 4 Taiwan 1,7 5,6 24,8 21,2 9 1.356 279 5 Turkey 0,1 1,5 0,9 1,5 0,5 528 3 5 Japan 2,5 4,6 10,8 5 - 325 6 Thailand 0,9 2,1 6,7 6,2 3 619 201 Total 17,7 74,5 175,9 307,7 100 891 136 Total 19,0 53,5 149,0 245,0 100 684 358

Ranking 2017 2005 2010 2015 2017 Δ % 15/05 _{Ranking 2017} 2005 2010 2015 2017 Bakery Coffee 1 Indonesia 1,6 26,7 135,7 214,0 70 8.225 701 1 Indonesia 3,4 4,4 27,6 43,5 19 702 895 2 Hong K. 15,5 42,2 107,0 137,0 45 593 225 2 Malaysia 28,6 34,5 15 - -3 Taiwan 0,4 13,5 64,2 48,5 16 14.830 259 3 Vietnam 7,5 37,3 59,5 23,8 10 690 -36 4 Denmark 9,3 20,8 80,6 46,4 15 769 123 4 Italy 1,9 5,3 18,1 22,4 10 878 324 5 Korea S. 2,1 7,2 39,9 37,0 12 1.764 414 5 Unites States 3,5 9,6 11,1 17,9 8 222 86

6 Italy 1,2 4,9 26,5 26,7 9 2.072 445

Total 50,5 167,8 713,8 794,0 100 1.313 373 Total 31,2 78,5 209,0 231,0 100 570 194

Ranking 2017 2005 2010 2015 2017 Δ % 15/05 Ranking 2017 2005 2010 2015 2017

1 New Zeal. 14,5 52,2 131,9 246,2 48 810 372 1 Italy 5,1 47,9 107,0 69,2 21 2002,2 44

2 Australia 11,4 21,6 87,4 85,5 17 666 296 2 Russia 62,5 19 3 Unites St. 3,8 13,6 51,6 61,7 12 1.258 354 3 Belgium 3,4 15,5 36,9 49,8 15 978,9 221 4 Italy 1,0 3,1 20,9 32,3 6 1.949 942 4 Unites St. 8,5 11,1 26,5 26,4 8 210,3 138 5 Denmark 0,8 2,9 14,3 25,7 5 1.679 786 5 Germany 2,0 13,0 47,4 24,0 7 2306,1 85 6 France 1,8 4,8 18,2 22,0 4 922 358 6 Switzerland 1,6 3,6 22,6 11,3 3 1348,7 218 Total 38,1 105,8 337,3 515,4 100 785 387 Total 62,1 142,0 429,0 337,0 100 590,8 137 Source: World Trade Atlas, ICE, China’s Customs Statistics

Δ % 17/10 Δ % 15/05 Δ % 17/10 Δ % 17/10 Δ % 15/05 Δ % 17/10 Δ % 17/10 Δ % 15/05 Δ % 17/10

While China has a strong tradition of tea consumption, coffee – in-troduced only in the nineties – has so far become a consolidated hab-it among the upper classes. Now, due to the development of the me-tropolis, coffee reaches greater parts of the population. Cafeterias have become a symbol of urban lifestyle, places to relax, and coffee has become a ritual. The quality of blends does not hold the right im-portance, as the consumer lacks the proper parameters of judgment.

Starbucks, with its hundreds of stores spread around the Coun-try, is the most widespread Western coffeehouse chain and provides a major contribution to the development of the sector; meanwhile the spread of instant coffee increases its penetration among people.

The boost received by national production has reached unexpect-ed goals, even if it is only localisunexpect-ed in the districts of Yunnan, whose Arabic blend alone provides 95% of the supply, and Hainan. Imports of coffee amounted to 231 million USD in 2017, 10% higher than the previous year.

Italian exports have reached a value of 22.4 million USD, with a 40% annual growth rate. Italy holds the fourth place after Indonesia (43.5 million; 19% share), Malaysia (15%), Vietnam (10%).

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soon China will be the world’s largest market.

As for the cheese and milk industry, the Chinese potential has gathered momentum and no other country currently shows such great prospects of growth. Present annual pro capite consumption has so far remained low, namely 2.3 kg milk pro capite, a statistic that barely reaches 1.3% of Dutch consumption, 2.7% of the US and 6.4% of the Japanese. The potential market demand for dairy is positively esteemed by China’s National Bureau of Statistics in 42 kg in 2020.

Changes in food habits immediately cause a surge in demand, wit-nessing an exponential growth in the milk industry, placing China among the world’s largest producers, and also causing detrimental episodes, like the tainted milk scandal.

Consumption of milk and yoghurt has strongly increased. The same trend characterises the demand for cheese, especially used as an ingredient for hamburgers, pizza and sandwiches, in large part supplied by Australia and New Zealand. Imported cheese from France, the Netherlands and Italy is required in the catering chan-nel, but it is most likely to remain out of supermarkets.

The strong potential encourages companies to set up production lines in the Country. Thus, Danone and Kraft have formed joint ven-tures with local partners, especially active in baby food and yoghurt market.

China’s imports of cheese have amounted to 515.4 million USD in 2017. Italy holds 6% share, after New Zealand (48%), Australia (17%),

United States (12%) [table 7].

Table 7 China’s Imports of Cheese - Chocolate (million USD)

But it is with regard to the chocolate sector that Italy is the main competitor. China is the world’s second largest market, only after the United States. Many foreign brands control large parts of the na-tional consumption, as they can provide a quality not yet achieved by Chinese producers. Local production exceeds 100,000 tons, but pro capite consumption reaches only 1% of global average.

Such a huge gap promises good chances for the future of the Chi-nese chocolate market. ChiChi-nese producers are unable to meet the uncontainable demand as they lack long established brands and an

Table 5 – China’s imports of extra virgin olive oil - Bakery Products (million USD)

1 Spain 8,2 34,1 140,7 246,2 80 1.616 621 1 Korea S. 10,7 7,3 41,1 116,0 50 284 1496 2 Italy 6,6 15,2 19,3 41,9 14 192 176 2 Italy 1,7 5,0 20,5 25,9 11 1.128 420 3 Greece 1,9 4,5 5,3 9,2 3 184 105 3 Hong K. 1,5 3,9 20,4 22,7 10 1.269 482 4 Australia 0,6 1,8 3,0 3,1 1 376 75 4 Taiwan 1,7 5,6 24,8 21,2 9 1.356 279 5 Turkey 0,1 1,5 0,9 1,5 0,5 528 3 5 Japan 2,5 4,6 10,8 5 - 325 6 Thailand 0,9 2,1 6,7 6,2 3 619 201 Total 17,7 74,5 175,9 307,7 100 891 136 Total 19,0 53,5 149,0 245,0 100 684 358

Ranking 2017 2005 2010 2015 2017 Δ % 15/05 _{Ranking 2017} ₂₀₀₅ ₂₀₁₀ ₂₀₁₅ ₂₀₁₇ Bakery Coffee 1 Indonesia 1,6 26,7 135,7 214,0 70 8.225 701 1 Indonesia 3,4 4,4 27,6 43,5 19 702 895 2 Hong K. 15,5 42,2 107,0 137,0 45 593 225 2 Malaysia 28,6 34,5 15 - -3 Taiwan 0,4 13,5 64,2 48,5 16 14.830 259 3 Vietnam 7,5 37,3 59,5 23,8 10 690 -36 4 Denmark 9,3 20,8 80,6 46,4 15 769 123 4 Italy 1,9 5,3 18,1 22,4 10 878 324

5 Korea S. 2,1 7,2 39,9 37,0 12 1.764 414 5 Unites States 3,5 9,6 11,1 17,9 8 222 86

6 Italy 1,2 4,9 26,5 26,7 9 2.072 445

Total 50,5 167,8 713,8 794,0 100 1.313 373 Total 31,2 78,5 209,0 231,0 100 570 194

1 New Zeal. 14,5 52,2 131,9 246,2 48 810 372 1 Italy 5,1 47,9 107,0 69,2 21 2002,2 44

2 Australia 11,4 21,6 87,4 85,5 17 666 296 2 Russia 62,5 19 3 Unites St. 3,8 13,6 51,6 61,7 12 1.258 354 3 Belgium 3,4 15,5 36,9 49,8 15 978,9 221 4 Italy 1,0 3,1 20,9 32,3 6 1.949 942 4 Unites St. 8,5 11,1 26,5 26,4 8 210,3 138 5 Denmark 0,8 2,9 14,3 25,7 5 1.679 786 5 Germany 2,0 13,0 47,4 24,0 7 2306,1 85 6 France 1,8 4,8 18,2 22,0 4 922 358 6 Switzerland 1,6 3,6 22,6 11,3 3 1348,7 218 Total 38,1 105,8 337,3 515,4 100 785 387 Total 62,1 142,0 429,0 337,0 100 590,8 137

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appropriate differentiation of the supply. Hence multinationals and foreign companies have an easy entry into the market and are able to conquer the most profitable segments.

In 2017, China imported more than 337 million USD in chocolate, Italy stands out with 21% share, reaching 69.2 million USD sales. These remarkable prospects have induced the presence of Ferrero for several years; the great success in China has resulted in the re-cent opening of a factory in Hangzhou.

The ice cream sector is expanding rapidly as well: Chinese pro-duction exceeds 3 million tons a year, amounting to 34 billion RMB. The ice cream market is a promising one, also due to the ongoing pro-cess of seasonal adjustment of consumption. Average pro capite con-sumption has so far remained low if compared to 23 kg in the USA, 17 kg in Australia and 11 kg in Japan.

Demand has mostly increased in takeaway ice cream, due to the loyalty of retailers to their brands in terms of widespread promo-tion. This segment no longer tends to count among luxury goods, thus attracting the most renowned and active multinational companies in the market, which is currently controlled for 90% by Yili Group, Mengniu Group, Bright Group, Nestle, Wall’s. Imports have reached 50 million USD, and the growth trend is close to 30%.

The ongoing increase in income in larger parts of metropolitan ar-eas encourages the assimilation of western food habits and the pro-gressive interest for the health properties of the Mediterranean di-et, identified as a leading incentive in purchase behaviour (Guthrie 2009). This trend of success experienced by Italian food products is also sustained by the growth of tourism, which allows direct contact with authentic Italian cuisine (Coletta, De Cicco 2011).

The Chinese market increases with the rise of the living standard. Quality food has become popular, portending great business oppor-tunities for made in Italy. Their penetration in the market is some-how hindered by the strong tie the Chinese population has with its deeply rooted local traditions (Cui, Liu 2000). Italian cuisine comes to be regarded as a social status, confined to a market niche. As in other similar markets, the growth of Italian restaurants seems to be a crucial factor in the success of made in Italy.

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4 Discussion and Conclusion

4.1 Concern of Italian Sounding

In China, the progressive development of fake goods, imitation of products and piracy phenomena show the same trend as internation-al imports. These identify a set of phenomena: the use of ingredients of lower quality and value than the original, a productive process aimed at cost containment, the circumvention of legal requirements, as well as the counterfeiting of company identity, geographical ori-gin, productive process. The imitation of specific aspects of a prod-uct suggests a misleading geographical origin, like the improper use of words, colours, names, places, images: this is the Italian sounding phenomena (De Pin 2009).

Fraudulent acts violate the rights of intellectual and industrial property, resulting in embezzlement and reproduction of peculiar characteristics of the original good with a clear intention of fraud. The imitative practices result in the marketing of products by gen-der and appearance that are similar – but not identical – to the orig-inal, intended to arouse fake expectations, without having the same properties of the original good.

From a theoretical perspective, these phenomena might lead to market failure, an even more emphasised chance in presence of a globalised market, easily explained for the existence of information asymmetries, trade barriers, high transaction costs (Stiglitz 1987).

For China, geographical, cultural, and legislative dissimilarities raise transaction costs, worsening information asymmetries between produc-ers and consumproduc-ers. The natural attitude towards imitation proved by local firms is encouraged, resulting in moral hazard phenomena, fake goods benefiting from an undeserved reputation (Akerlof 1970).

Price becomes an inadequate factor for the recognition of quality. Conversely, it produces an adverse selection on demand, whose pur-chase intentions are driven by the expected quality rather than the effective one (Olshavsky 1985).

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intermediate.12_{The premium price, gained by the seeming}

Italian-ness, represents the market profit resulting from illegitimate repu-tation. The price differential compared to conventional references translates the profit to imitation products.

Thus, the persistent trade barriers hinder the penetration into the Chinese market by made-in-Italy products, and the increasing demand that is not satisfied by original products is provided by

imi-tations (Qualivita 2007).13

However, given the high number of wealthy citizens, even if rela-tively small, the potential for high-end Italian food products is huge and increasing. The replacement of consumption with lower quali-ty products results in information asymmetry, accompanied by very high transaction costs. The mere image evoked by Italian food, be-cause of the halo effect, makes the payment of a premium price cred-ible for the average Chinese consumer, even for a product that con-forms to the average quality of the market. The deceptive supply, aware of the average purchasing power of the Chinese consumer, takes advantage of information asymmetries, in the awareness of high transaction costs and huge commercial barriers, conveying a substantial share of demand towards non-original foods, confirming

the finding that bad goods drive away good ones.14

Not only do the negative effects of these phenomena affect the sin-gle product, but the supply system as a whole. Italian firms are una-ble to reach a position of competitiveness, because their positioning

12 Actually, not always the prices of Italian sounding food are lower than the made-in-Italy one. Often it is the opposite situation, with the prices augmented of 20-30%. The difficulties in finding authentic food and the scarce knowledge of the character-istics of the original ones result in a dominant position for imitations (source http:// www.assocamerestero.it).

13 In 2018, the Chinese government removed its ban on Italian beef and reduced by half the import tariffs on some of the cardinal products of the Made in Italy: Parmi-giano RegParmi-giano, Grana, aged cheeses, Gorgonzola (from 15 to 8%), grated and melted cheese, wine spirits (from 15 to 5%), vermouth (from 65 to 14%), pasta and sausages, salami (from 15 to 8%). The agreement for the removal of non-tariff barriers for Italian citrus fruit is at the end of 2018. Oranges, mandarins, lemons are added to the 2016 list of the opens of Chinese borders relative to Italian pig meat and to the 2018 one for lu-cerne. Made-in-Italy pears and apples are still blocked and are object of a specific ne-gotiation (source Coldiretti).

14 The contingent ‘trade war’ between the USA and China is emblematic of the en-tity of the imitation market and of the role of commercial barriers. Among the numer-ous foodstuffs and beverages in the American Black list there is the fake made-in-Chi-na Marsala wine, protected by Italy with the Controlled Denomimade-in-Chi-nation of Origin (DOC); whereas China hits with duties fake Italian cheeses from the USA (parmesan,

provo-lone, mozzarella, ricotta, Asiago, fontina, pecorino romano, etc.), main supplier of fake

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is undermined by the imitations’ activity: as long as their investments do not generate income, they cannot expand their market share.

Furthermore, the predominance of imitations causes the inevi-table deterioration of the image of quality so far gained, thus ham-pering the strategies of demand segmentation. The average Chinese product, which behaves according to the average quality available, disadvantages the original product, sold at higher price. The impos-sibility of enhancing its own specialities causes the failure of mar-ket expansion (Canali 2012).

Among the most counterfeited products, we can find Chinese par-mesan, pecorino cheese, whose packaging portrays a cow instead of a sheep, pomodorini di Collina, caciotta cheese, bearing an Italian flag on its brand (Source Coldiretti).

Despite its relevance, the phenomenon is underestimated and nei-ther consumers nor producers seem to perceive its importance. The majority of Chinese consumers are accustomed to buying products with an Italian name, without even questioning their real origin. To them it does not matter if these are real Italian. The goods replaced by imitations, considering the spread price gained, represent the so-cial costs of information asymmetry for Chinese consumers (Kreps, Wilson 1982).

From Italian supply companies, the perception of the phenomenon does not receive the adequate attention. Additionally, this underes-timation, not recognising the potential of competitiveness of Italian firms in the Chinese market, results in a failure of the market.

Nevertheless, the issue can be investigated under an alternative light. The competition of high-end food products cannot take place on price as much as on exclusivity, uniqueness, excellence, requiring spe-cific strategies to segment demand and create brand loyalty (Venturini 1995). Making use of the peculiar certifications of origin – of product and process – and of the traceability of supply chain, they must turn to a market that is able to pay off the intrinsic value (Shapiro 1983). On the other hand, the strong growth of demand segments willing to recognise the right quality to the original Italian specialities makes China the most promising market for implementing the best modern marketing strategies for the countless sectors of Italian high-end food. Theoretically, of special interest is the economic evaluation of the effects of information asymmetry on the market. The evaluation of imitative phenomena focuses on the results obtained with the appli-cation of some indicators suggested by literature and can be inter-preted with an eye on future studies and working hypotheses

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Table 8 Italian Agro-food Sounding in China - Estimation 2017 Tab. 8 - Italian agro-food sounding in China - Estimation 2017

Indicators million Euro

Italian sounding Value 649

Intensity of Imitation Index 2,59 Italian sounding Value/Export Made in Italy food

Damage Index 74

Value of Made in Italy food counterfeiting

Information Asymmetry Index 104 Differencial Price Made in Italy food* Italian Sounding Value

Source: Elaboration on Coldiretti, CENSIS data

Considering the average proportion of Italian sounding on the Asian market related to the value of the original products, the market val-ue of the imitative phenomena is estimated.

The amount of Italian sounding in China is expected to be high-er than 600 million euros, showing an ‘intensity of imitation index’ equal to 2.59. This indicator is obtained by comparing the value of the Italian sounding with the total exports made-in-Italy food. While, the just value of counterfeit goods, the ‘damage index’, that is, prod-ucts illegally sold as authentic, exceeds 70 million euros.

The evaluation of the unfair advantage derived from information asymmetry is computed through the ‘information asymmetry index’, identified as the differential price of made in Italy, that is, the aver-age deviation between the market price of authentic products com-pared to imitations, multiplied by the value of the Italian sounding. This index is estimated to be more than 100 million euro.

These findings and their implications may constitute promising in-centive towards future research guidelines, concerning the measure-ment of the economic effects of the information asymmetries and of trade distorting processes, typical of the international trade.

4.2 Implications for Italian Companies

The development of business strategies aimed at recovering market shares unduly occupied by counterfeit products is a must, given the weak legal protection of made-in-Italy food, pending the conclusion of the World Trade Organization agreement on the international pro-tection of geographical indications.

In addition to law defence through the few protection tools, stands out the requirement of active participation by companies in the pro-posal of enhancement and promotion activities.

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The peculiarities of our food provide opportunities to convey the set of values that identify the ‘Italian way of eating’, the cornerstone

of Italian style, basis of the competitive advantage.15

Management of the relationship with the consumer and the abili-ty to meet emerging expectations are preconditions for penetration strategies. It is in the skill of firms specialised in quality food and aimed at a high target to take advantage of changes in Chinese con-sumption patterns.

The rise of clusters with similar consumption patterns implies the requirement to manage global strategies. Product differentiation must be associated with the know-how to manage penetration strategies in local markets, crucial to compensate the high investment costs.

The increased competition on low price and quality food sees a higher concentration of competitors, making unavoidable the stra-tegic positioning based on segmentation and differentiation. This is encouraged by the increase of informed groups, for which the changed sensitivity to food selection softens the role of price as the main variable.

Penetration strategies must allow Italian companies to exceed their natural limits, intrinsic in their small size. The implementation of col-lective strategies can make up for the lack of financial and manage-rial resources.

The underestimation of the specificities of the Chinese market re-sults in unprofitable strategies for firms that mistakenly consider that market as the domestic one.

In this context, the strategic plan must include several actions of marketing mix: the focus on the product and its competitive positioning must be coordinated with the specific communication and promotion activities, and with the precise policy towards distribution channels. The certification of the product cannot dissociate itself from its en-hancement. Its recognition becomes a fundamental key, the goal is to mitigate the information asymmetry with the consumer, making it more difficult to pursue counterfeiting and imitation strategies.

Strategic elements highlighting product differentiation are useful: the refinement of packaging, the information provided on the label, until they assume the connotation of unique references.

The improvement of the peculiar positioning of made-in-Italy spe-cialities is compatible with high price segments, in which competition is more difficult.

However, it is with regard to the structure of the supply that the greater efforts of adaptation are required.

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Adequate fitting of the economic size and financial soundness of companies identifying the Chinese as a preferred market is required, to ensure adequate bargaining power in trade relations and real op-portunities to defend against agro-piracy. In the impracticality of the single initiative to reach an adequate dimensional structure, the sys-tem of business aggregation and network can be usefully used for coordinated strategies, with joint actions for the enhancement, pro-motion and protection.

The activity of communication and collective promotion is strate-gic to increase the recognition of Italian food. This is central in the function of choice, with the implicit simplification of the selection pro-cess. The easy distinction between original and false involves a per-severing information activity on how to determine the authenticity of food, such the search for the words ‘Made in Italy’, ‘Imported from It-aly’, the certifications DOP and IGP.

Nevertheless, it is difficult for Chinese consumers to learn the structure and meaning of our system of quality certification, where

the overlapping of brands makes an aware purchase extremely hard.16

Effective communication and promotion activities can only be planned and implemented in networks, in order to reach the critical threshold required for the dissemination and penetration of the mes-sage. Being able to own adequate financial resources ensures con-tinuity of the activity, as well as the use of mass media. The focus on the typical target of made-in-Italy food identifies consumers with higher propensity and informative receptivity.

The penetration strategy must involve the distributors, who play a key role in commercial success. In supermarkets, the original prod-ucts shall be placed separately from counterfeits, to emphasise the dif-ferentiation: it is the distributor’s confidence in the benefit of invest-ing in the authentic food that increases its visibility. The increased presence of original products comes from the real increase in profit-ability of the ‘shelf space’ and its ‘rotation index’.

However, real incentives to reward the authentic food are the ev-idence of the risk of decreasing sales that could result from the deal of counterfeits and the return of the consumer’s negative judgment if the perceived quality is not in accordance with expected one.

The agreement with the distribution chains gives the chance to market the original products on a large scale, leveraging the huge share of demand not yet met.

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The implementation of such strategic actions, however, implies the acquisition of a strong bargaining power that contrasts with cur-rent distribution strategies. In fact, the major manufacturers of im-itation products, marketed as ‘private label’, are indeed the opera-tors of large-scale distribution.

Adapting the strategy to the specificities of the Chinese market is essential, as well as to the individual product. The cases of Piazza Ita-lia and of the initiative Tastes of the ItaIta-lian Regions in Shanghai are emblematic in this regard. Piazza Italia was inaugurated in Beijing in 2008, in the luxury area of Chaoyang, as the largest Italian food

cen-tre abroad, with a surface of almost 4,000 m2_{spread over three stores,}

offered more than 3,000 references of made-in-Italy food. Underesti-mating important factors, such as high entry costs, weak logistics, lack of development of local staff, were decisive factors for its failure. A brighter situation is highlighted by Tastes of the Italian Regions, opened up by Auchan Italia in 2012. The use of modern distribution al-lows a more lasting approach for an adequate education of the Chinese consumer, which is a condition for the penetration on a larger scale.

4.3 Conclusions and Research Suggestions

Nowadays, the Chinese food market – represented by nearly one and a half billion people – features the most appealing business chanc-es in the world, still limited by problems such as legal issuchanc-es, trade barriers, backwardness of commercial distribution, and rural-urban gap in income and lifestyle.

When referring to food and China, some differentiations should be made based on specific categories (when policies, law and trends are involved), especially when talking about made in Italy.

A precise order to address policy implication, business implications, suggestions for Chinese and Italian companies must be followed.

The rapid changes in behaviours and the increasingly urgent nu-tritional needs of the growing multitude of young people, forecast unprecedented economic impacts in the global market. The quantita-tive instances are associated with the desires to taste typical Italian food of an emergent group of customers who are aware of the impor-tance of product quality and nutritional elements, extremely recep-tive of modern marketing strategies.